Brazil and Oil Among Winning Sectors in U.S. Despite World Turmoil

NEW YORK (TheStreet) -- I warned last week that the current turmoil in the world was going to get worse before it got better. But the market is still holding up.

The market survived the continuing fighting in Gaza and Iraq and the Malaysian commercial airliner shot down over Ukraine, even though by the end of that Thursday, the market had declined 161 points.

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Still, despite the Federal Reserve chief talking down specific segments of the market, the S&P 600 Smallcap Index ended the week down only 0.50%. Gold, which was down a little more than 2%, has had a big run recently and is likely consolidating.

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One company that combines two of last week’s winners -- Brazil and oil -- is energy giant Petrobras (PBR), currently trading around $18, up 28% for the year to date.

The iShares MSCI Brazil Index (EWZ) exchange-traded funds continues to break out to new highs as new polls suggest Brazil's incumbent party is trailing. Investors continue to bet on the prospect of political change later this year.

Here in the U.S., the Dow is only up 3.2% for the year and its forward P/E has actually dropped. Small-caps are now back to flat for the year after advancing 40% last year. I continue to watch the small-cap index levels as a warning signal that the bear is starting to rear its ugly head after this 64-month bull run.

Looking at the S&P 600 Smallcap Index (IJT), the key range is $108-$124. Should the index dip below the $108 support level, the bull market is in jeopardy.

Despite all the turmoil in the world, U.S. markets continue to hit new highs driven, in part, by optimism about earnings. Well-run companies have been able to navigate a listless economy and continue to grow earnings.

I continue to be cautious, but remain bullish for now.

At the time of publication the author was long PBR.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

TheStreet Ratings team rates PETROBRAS-PETROLEO BRASILIER as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate PETROBRAS-PETROLEO BRASILIER (PBR) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its attractive valuation levels, increase in stock price during the past year and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, poor profit margins and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • PETROBRAS-PETROLEO BRASILIER's earnings per share declined by 43.3% in the most recent quarter compared to the same quarter a year ago. Stable earnings per share over the past year indicate the company has sound management over its earnings and share float. However, the consensus estimates suggest that there will be an upward trend in the coming year. During the past fiscal year, PETROBRAS-PETROLEO BRASILIER's EPS of $1.70 remained unchanged from the prior years' EPS of $1.70. This year, the market expects an improvement in earnings ($3.73 versus $1.70).
  • The gross profit margin for PETROBRAS-PETROLEO BRASILIER is currently lower than what is desirable, coming in at 32.19%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 6.60% trails that of the industry average.
  • Net operating cash flow has decreased to $3,981.00 million or 46.59% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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